5 things to watch out for in Infosys Q4 results

If Infosys continues with its recent form and trumps expectations, it would have a strong claim towards regaining its bellwether tag.Anirban Sen | ET Bureau | April 14, 2016, 20:35 IST

India’s second largest software exporter Infosys once again kicks off earnings season this week and as always, it will arguably be the most closely-watched stock of the results season, as investors in India’s $160 billion IT industry nervously look for signs of a healthy year ahead for the sector especially after a somewhat disappointing fiscal 2015-16.

Over the past three quarters, Infosys has gone a long way towards restoring shareholder confidence in the company’s fortunes with three consecutive quarters of industry-leading growth, after having lost its earlier sheen and conceding its prized bellwether tag to rivals such as Tata Consultancy Services and US-based Cognizant Technology Solutions under the previous management.

And if Infosys continues with its recent form on Friday and trumps market expectations, it would have a strong claim towards regaining its bellwether tag. If Infosys registers a strong fourth-quarter performance, it will also set the tone for the year ahead and give investors hope of a healthy year ahead, at a time when the sector is set to record its slowest-ever revenue growth since the Lehman Brothers crisis of 2008-09.

Here are five things to watch out for with Infosys’s results on April 15:

Most analysts, including the likes of Kawaljeet Saluja of Kotak Institutional Equities, expect Infosys to guide to full-year revenue growth of at least 11-13% for fiscal 2016-17 in constant currency terms. Anything below that range will be seen as conservative by the investors.

New investments in startups or acquisitions: As has been the trend for the past few quarters, Infosys may announce fresh investments in new-age disruptive startups or even acquisitions. As part of Sikka’s 2020-strategy, Infosys has said that it wants to aggressively chase acquisitions and expects buyouts to contribute at least $2 billion in revenue over the next four years.

Infosys also has a $500-million venture capital fund to invest in startups.

Attrition: Another hallmark of Infosys’s performance over the past few quarters has been how the company has controlled and brought down attrition rates, with a string of employee morale-boosting measures being taken under Sikka.

At the time Sikka took over, attrition rates had crossed 20% - indicating that at least one out of every five employees left the company at that point. Since then attrition rates have come down to 13-14% levels and it will be interesting to see if Infosys can maintain those levels for the near term.

Performance of large accounts and pipeline of large deals: While Infosys has been consistently winning large deals over the past few quarters and has had the best track record of winning deals worth over $50 million in total contract value among top-tier rivals, it has also at the same time faced severe pressure on pricing - a fact conceded by COO Pravin Rao in a recent interview.

Whether Infosys can continue chasing growth without sacrificing margins, remains to be seen. For now experts feel it will tough to manage both, without sacrificing either, especially given the huge shift taking place at the core of the traditional IT services industry. Also, investors will expect a progress report on how some of the company’s newer offerings and businesses around analytics, cloud computing and its Aikido line of services have performed and are expected to perform in the near term.

Possible clarity and announcements on management of EdgeVerve and Finacle: With the resignation of former EdgeVerve head Michael Reh, Infosys is hunting for a successor who can potentially turnaround and drive some of Infosys’s newer futuristic bets. Infosys may provide some clarity on what will happen to that role and whether they have identified a replacement for Reh.

Investors may also expect some announcements on Infosys’s current board and whether the company wants to add any more board members to strengthen the board - last quarter Infosys appointed Pacific Paradigm Advisors founder Punita Kumar-Sinha as an independent director on its board.